Malawi needs to carefully balance its efforts on macroeconomic management and fiscal consolidation with meeting humanitarian needs if the country is to see a recovery in economic growth in 2017 and withstand the impact of future weather related shocks.
In the fourth edition of the Malawi Economic Monitor (MEM 4) titled Emerging Stronger launched last Thursday, the World Bank notes that in 2016 Malawi is expected to record a growth rate of just 2.5 percent due to two consecutive years of drought which have adversely affected the performance of agriculture, the most important sector in Malawi’s economy. To lay the foundations for a recovery in 2017, the country needs to implement and stay the course on a number of politically challenging reforms. To build resilience, policy and institutional reforms will be required to eliminate the policy-induced distortions that exacerbate agricultural and climate vulnerability. It is also necessary to improve macroeconomic governance to reduce deficits, increase fiscal buffers and restore confidence.
However, the current drought also presents an opportunity for Malawi to undertake reforms that would see the country emerge stronger from the crisis. In this regard, the MEM 4 suggests policy measures to reduce distortions and ensure that agricultural markets function more effectively, such as greater transparency and predictability in the actions of public sector institutions that engage in commodity markets. In the medium term, the country needs to invest more in building resilience against climate induced weather shocks such as agricultural infrastructure and extension services to facilitate crop diversification.
The MEM 4 has a special focus on poverty and vulnerability. Although in recent years Malawi has made some encouraging progress in terms of human development, the achievement of sustained poverty reduction in rural areas has been difficult, with poverty rates remaining stagnant. The MEM therefore suggests several measures to build the resilience of poor rural populations and to help them emerge stronger against climate shocks. These include a more balanced expenditure on the agriculture sector, coupling reform of subsidy schemes with practical measures to boost agricultural productivity and encourage greater commercialization. Government should also look to improve the efficiency and effectiveness of social safety net programs with better targeting and reduced leakages. In addition, the MEM notes that Malawi’s continued rapid rate of population growth is putting pressure on the limited land resources and delivery of services which in turn exacerbates poverty.
The MEM is a series of biannual reports that provide an analysis of economic and structural development issues in Malawi with the aim of fostering better informed policy analysis and debate. Previous MEMs were Managing Fiscal Pressures, Adjusting in Turbulent Times, and Absorbing Shocks, Building Resilience.
The 4th MEM is available at http://documents.worldbank.org/curated/en/994621478685605311/Emerging-stronger